I believe that in the current housing and economic environment (with declining home values nationwide) it never makes economic sense for a Bank/Servicer to foreclosure on an owner occupied home. In a declining home price environment, a foreclosure is always the least attractive option for a Bank economically, as the time and cost of foreclosure result in lower economic returns compared to other pre-foreclosure options. As a result, I believe we can successfully and rightfully place a temporary nationwide foreclosure moratorium on homes occupied by cooperative owners/borrowers - if we design such a moratorium right and support it with appropriate private sector initiatives.
A foreclosure should only be necessary if and when the borrower (individual or family) doesn't return the Bank's phone calls or respond to the Bank's letters and is otherwise uncooperative on the issue of how to address their housing costs and reality in a way that is sustainable for them and the Bank longer term. This in my mind is a key concept: the goal of all foreclosure prevention initiatives should be to adapt the borrowers economic reality with their housing reality.
In simple terms, here's how we can avoid foreclosures in a way that is consistent with good business and good policy:
1. Loan modifications to make housing costs affordable: Maximize the number of borrowers whose loan is modified such that their housing costs are consistent, on a go forward term basis, with their go forward monthly income. The Obama administration has announced several initiatives to expand current loan modification programs to help achieve this goal.
However, loan modification cannot work for everyone. If an individual's earnings are down a lot with no immediate prospect of returning to previous higher levels (which is the case for many people in the housing, real estate and mortgage sectors)...then they really cannot afford to stay where they currently are. For example, if a realtor previously earned $500,000 per year and is living in a $3 million dollar home but is now only making $100,000 per year then loan modification just isn't an option for them. A different solution is required.
2. Servicer assisted short sales: For every individual who does not qualify for a loan modification, a servicer assisted short sale should be pursued right at the point the loan modification decision is made. In a servicer assisted short sale, the (troubled) borrower works with the servicer as a partner instead of adversary. The home is sold for market value, the difference between the amount of the home sale proceeds and the loan amount is forgiven (and current law waives any tax liability associated with this forgiven amount), and the servicer can even afford to pay the borrower to help make their move to more affordable housing smooth, graceful and respectful.
This type of short sale program is and should be the industry standard - and I and HausAngeles are enthusiastically working with a leading servicer to pilot and refine this program in Los Angeles (so it can quickly be rolled out nationwide).
The above foreclosure prevention strategy - implemented in a coordinated and well communicated manner - can effectively eliminate foreclosures for all cooperative troubled borrowers while actually reducing servicer/Bank losses on these troubled assets.
Can doing the right thing be good business? On the issue of owner occupied foreclosures I believe the answer is yes - as long as all parties are polite, respectful and realistic.
Disclaimer: This blog is not intended to provide legal or tax advice to anyone and merely reflects my personal understanding and opinions on this issue. Individuals should consult with their tax advisor before taking any action based on the above.
Thursday, February 26, 2009
Monday, February 23, 2009
The Silver Lining of The Crisis: Affordability and Humility
It’s hard to find much good news nowadays, surrounded as we are by doom and gloom attitudes and news at work, in the media and in conversations. However, I see at least 2 important areas where the current trend is positive for us as a society: Housing Affordability and Humility.
First, as a result of the housing crisis and the tremendous (and at least for now, continuing) declines in the prices of residential real estate, home or condo ownership is suddenly becoming a viable possibility for many lower income families. As an example, please check out the press release below from the California Association of Realtors (a trade organization) which discusses the massive improvements in housing affordability in California over the past 12 months. The analysis below is grounded in Q4 08 vs. Q4 07 data and will continue to “improve” (from a lower income family standpoint) in the coming months. This information is a far cry from conversations I remember just a few years ago regarding how housing had become a “luxury product” in California. Given the tremendous and well acknowledged familial and social benefits of home ownership, this significant improvement in housing affordability is great news for California and for Los Angeles.
Second, one of my least favorite aspects of the boom days was the massive inflation of ego’s all around me. Many people made much easy money during the boom, and in too many cases this financial success was accompanied by an increased sense of relative self-importance (for reasons discussed by both Nassim Nicholas Taleb and Malcolm Gladwell in recent books). The current crisis is quickly downsizing people’s ego’s and I, for one, think a humbler, gentler us will be a better us as a whole.
Entry-level housing affordability increases to 59 percent
Click here for the full article: Full Article
Wednesday, Feb. 18, 2009
C.A.R. reports entry-level housing affordability increases to 59 percent
LOS ANGELES (Feb. 18) The percentage of households that could afford to buy an entry-level home in California stood at 59 percent in the fourth quarter of 2008, compared with 33 percent for the same period a year ago, according to a report released today by the CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.).
C.A.R.’s First Time Buyer Housing Affordability Index (FTB-HAI) measures the percentage of households that can afford to purchase an entry-level home in California. C.A.R. also reports first-time buyer indexes for regions and select counties within the state. The Index is the most fundamental measure of housing well-being for first-time buyers in the state.
The minimum household income needed to purchase an entry-level home at $248,030 in California in the fourth quarter of 2008 was $48,900, based on an adjustable interest rate of 6.02 percent and assuming a 10 percent down payment. First-time buyers typically purchase a home equal to 85 percent of the prevailing median price. The monthly payment including taxes and insurance was $1,630 for the fourth quarter of 2008.
At $48,900, the minimum qualifying income was 42 percent lower than a year earlier when households needed $83,700 to qualify for a loan on an entry-level home. Recent decreases in home prices and mortgage rates have brought affordability into better alignment with income levels of the typical California households, where the median household income is $59,160.
At 76 percent, the High Desert region was the most affordable area in the state. The San Luis Obispo County region was the least affordable in the state at 44 percent, followed by the Los Angeles County region at 46 percent.
The First-Time Buyer Housing Affordability Index also rose 6 percentage points in the fourth quarter of this year compared with the third quarter of 2008, due to a 14.1 percent decrease in the entry-level median home price.
Historical affordability data can be found at: historic data.
First, as a result of the housing crisis and the tremendous (and at least for now, continuing) declines in the prices of residential real estate, home or condo ownership is suddenly becoming a viable possibility for many lower income families. As an example, please check out the press release below from the California Association of Realtors (a trade organization) which discusses the massive improvements in housing affordability in California over the past 12 months. The analysis below is grounded in Q4 08 vs. Q4 07 data and will continue to “improve” (from a lower income family standpoint) in the coming months. This information is a far cry from conversations I remember just a few years ago regarding how housing had become a “luxury product” in California. Given the tremendous and well acknowledged familial and social benefits of home ownership, this significant improvement in housing affordability is great news for California and for Los Angeles.
Second, one of my least favorite aspects of the boom days was the massive inflation of ego’s all around me. Many people made much easy money during the boom, and in too many cases this financial success was accompanied by an increased sense of relative self-importance (for reasons discussed by both Nassim Nicholas Taleb and Malcolm Gladwell in recent books). The current crisis is quickly downsizing people’s ego’s and I, for one, think a humbler, gentler us will be a better us as a whole.
Entry-level housing affordability increases to 59 percent
Click here for the full article: Full Article
Wednesday, Feb. 18, 2009
C.A.R. reports entry-level housing affordability increases to 59 percent
LOS ANGELES (Feb. 18) The percentage of households that could afford to buy an entry-level home in California stood at 59 percent in the fourth quarter of 2008, compared with 33 percent for the same period a year ago, according to a report released today by the CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.).
C.A.R.’s First Time Buyer Housing Affordability Index (FTB-HAI) measures the percentage of households that can afford to purchase an entry-level home in California. C.A.R. also reports first-time buyer indexes for regions and select counties within the state. The Index is the most fundamental measure of housing well-being for first-time buyers in the state.
The minimum household income needed to purchase an entry-level home at $248,030 in California in the fourth quarter of 2008 was $48,900, based on an adjustable interest rate of 6.02 percent and assuming a 10 percent down payment. First-time buyers typically purchase a home equal to 85 percent of the prevailing median price. The monthly payment including taxes and insurance was $1,630 for the fourth quarter of 2008.
At $48,900, the minimum qualifying income was 42 percent lower than a year earlier when households needed $83,700 to qualify for a loan on an entry-level home. Recent decreases in home prices and mortgage rates have brought affordability into better alignment with income levels of the typical California households, where the median household income is $59,160.
At 76 percent, the High Desert region was the most affordable area in the state. The San Luis Obispo County region was the least affordable in the state at 44 percent, followed by the Los Angeles County region at 46 percent.
The First-Time Buyer Housing Affordability Index also rose 6 percentage points in the fourth quarter of this year compared with the third quarter of 2008, due to a 14.1 percent decrease in the entry-level median home price.
Historical affordability data can be found at: historic data.
Thursday, February 19, 2009
Announcing the creation of "HR Helping Hands": An All Volunteer HR Professionals Mentor Network
Every American can and should be a part of the solution to the historic housing and economic crisis our country and people are currently grappling with. This is my strong personal view as well as a key founding principle behind my real estate company HausAngeles, and is a view that is shared by most everyone around me both at work and at home. The truth is that until America is back on its feet and stronger economically, there will be millions of Americans (possibly up to 5 or 10% of our population) who need different types of help….but this number will be far smaller than the number of Americans (likely 90 to 95% of our population) who are in a position to help…in some way, big or small, monetary or non-monetary. So if we can help connect those with the ability and willingness to help with those that need this help….we can accelerate the path to economic recovery in a manner that isn’t dependent on the government “bailing everyone out”.
It is with this spirit that I have founded “Human Resources (HR) Helping Hands”: an all volunteer, free network of professionals with HR experience who want to donate their time and talents to help fellow Americans (e.g., those that have lost a job recently) in need of advice and support with respect to their job and career transitions.
As a former Chief People Officer for a 10,000+ employee organization, I have worked with many Human Resources professionals and know that “HR people” are helpers and empathizers by nature. Many HR professionals really want to help those impacted by this crisis, particularly given the large number of people experiencing job loss right now, but don’t have an easy way to get connected with these individuals in need. Enabling this “connection” is what HR Helping Hands is all about.
In the few days since I made the decision to create this network, I am already inspired by the enthusiasm and response from my HR colleagues and friends. Susan Cline, my former (fabulous) assistant at Indymac Bank, has agreed to be the “administrator” of this network…purely in her “free time” (i.e., during the evenings after she comes home from work). Key current and former Indymac HR leaders – Annissa Deshpande, Jennifer Pikoos and Marie Therese Wynne – have also joined the network, as well as agreed to be part of the core team that helps to build and manage this network (again, all in their personal time).
The network is “live” so if you are an HR professional (or know one) who would like to join and help, please email Susan at susanmc50@gmail.com. Alternatively, if you have a friend or acquaintance who could use an HR mentor…connect them with Susan to help them get an HR professional mentor assigned.
In order to keep the process simple (since this is an all-volunteer initiative), we are asking the HR professionals for the following minimum support for each mentee: an email or phone resume consultation/feedback session, and a 30m or more job and career advice session. Mentors can decide to do more and mentee's can ask for more help...but we will leave this up to them to discuss and resolve.
I will keep you blog updated as this initiative progresses….and hope you will share this with anyone you think might be either a potential mentor or mentee. ray
It is with this spirit that I have founded “Human Resources (HR) Helping Hands”: an all volunteer, free network of professionals with HR experience who want to donate their time and talents to help fellow Americans (e.g., those that have lost a job recently) in need of advice and support with respect to their job and career transitions.
As a former Chief People Officer for a 10,000+ employee organization, I have worked with many Human Resources professionals and know that “HR people” are helpers and empathizers by nature. Many HR professionals really want to help those impacted by this crisis, particularly given the large number of people experiencing job loss right now, but don’t have an easy way to get connected with these individuals in need. Enabling this “connection” is what HR Helping Hands is all about.
In the few days since I made the decision to create this network, I am already inspired by the enthusiasm and response from my HR colleagues and friends. Susan Cline, my former (fabulous) assistant at Indymac Bank, has agreed to be the “administrator” of this network…purely in her “free time” (i.e., during the evenings after she comes home from work). Key current and former Indymac HR leaders – Annissa Deshpande, Jennifer Pikoos and Marie Therese Wynne – have also joined the network, as well as agreed to be part of the core team that helps to build and manage this network (again, all in their personal time).
The network is “live” so if you are an HR professional (or know one) who would like to join and help, please email Susan at susanmc50@gmail.com. Alternatively, if you have a friend or acquaintance who could use an HR mentor…connect them with Susan to help them get an HR professional mentor assigned.
In order to keep the process simple (since this is an all-volunteer initiative), we are asking the HR professionals for the following minimum support for each mentee: an email or phone resume consultation/feedback session, and a 30m or more job and career advice session. Mentors can decide to do more and mentee's can ask for more help...but we will leave this up to them to discuss and resolve.
I will keep you blog updated as this initiative progresses….and hope you will share this with anyone you think might be either a potential mentor or mentee. ray
Sunday, February 15, 2009
Peace of Mind as a Tool to Abate the US Crisis of Confidence
I believe – and I think this is a relatively non-controversial view – that the current recession/crisis has been and will be worse/deeper as a result of fear seeping deep into the American psyche. Even though I disagree with many of the actions and in-actions of the Bush administration/team, I can understand at some level the logic supporting their reluctance to step in to prevent company/Bank failures early in the crisis. However, this very reluctance and the resulting inaction in helping fundamentally sound companies survive failure-inducing-panics significantly deepened the economic crisis by escalating the level of panic and fear in people’s psyche (as consumers or financial counterparties).
Basically, the prior administration let companies fail due to panic and this was, in my opinion, a fatal logical flaw in their policies. I believe if they had prevented any/all panic-driven failures, we would have had a more orderly market correction, a softer recession, and less unemployment/people problems.
Aside from this view described above, 2 other factors support the idea described below (and first introduced in an earlier blog). First, the fact that there is an over-supply of housing in the US today. I think this is a well accepted fact: just look at all the vacant foreclosed and unsold homes in the market and on Bank's balance sheets. Second, food is cheap in America. This was a surprise to me when I moved to the US from India in the early 1990’s: a country where the poor are fat and the rich are thin! This is exactly the opposite of the situation you see in most less developed nations including India.
So my idea/concept is very simple:
Most people’s #1 and #2 fear related to this crisis are: will I and my family lose the roof over our heads at some point due to this crisis, and will I and/or my family need to go hungry if things get really bad. People are scared because they don’t know how bad things can get for them, and they are worried about a worst case scenario playing out. There are even well known leaders/voices discussing this worst case scenario, and advising people to stock up on guns and food in preparation of a 2nd depression with civil unrest.
Well…it seems to me the housing problem is the simplest to solve as a country. Given the oversupply of homes nationwide, there is no reason a single American family should go homeless as a result of this crisis. Yet, every day families are facing this very issue. I know this because I have heard some of these very people speak at some of our public forums in LA (including one last week). The food situation is similar….food is cheap in America…super cheap relative to most other countries (on a purchasing power parity basis). Therefore, there’s no reason a single American should go hungry as a result of this crisis.
I think if the US President and/or Government were to tell all Americans simply this: We will make sure not a single American family goes homeless or hungry as a result of this economic crisis….that this would have a tremendous calming effect on the American people….and will accelerate our economic recovery. I think this “guarantee” should be relatively cheap to provide….especially in relation to the monies already being invested and spent to stabilize the financial system and stimulate the economy.
As with so many other things in life, there is both a real and an emotional/mental aspect to this crisis. If we can address people's biggest fears as described above, I think it would go a long way toward addressing the mental issues....which are often even more important/impactful than the real ones.
February 26, 2009 Update
Unfortunately, the reality on the ground - especially in California - continues to get worse. Witness this article today in Bloomberg on how previously middle class families are standing in line for government subsidized housing and food/social services due to the impact of the crisis on their lives. See article below:
California’s Newly Poor Push Social Services to Brink
Feb. 26 (Bloomberg) -- In California’s Contra Costa County, 40,000 families are applying for just 350 affordable-housing vouchers. Church-operated pantries are running out of food. Crisis calls have more than doubled in the city of Antioch, where the Family Stress Center occupies the site of a former bank.
The worst financial crisis in seven decades is forcing thousands of previously middle-income workers to seek social services, overwhelming local agencies, clinics and nonprofits. Each month 16,000 people, including many who were making $60,000 to $100,000 annually just a few years ago, fill four county offices requesting financial, medical or food assistance.
For the full article click here: Bloomberg article
Basically, the prior administration let companies fail due to panic and this was, in my opinion, a fatal logical flaw in their policies. I believe if they had prevented any/all panic-driven failures, we would have had a more orderly market correction, a softer recession, and less unemployment/people problems.
Aside from this view described above, 2 other factors support the idea described below (and first introduced in an earlier blog). First, the fact that there is an over-supply of housing in the US today. I think this is a well accepted fact: just look at all the vacant foreclosed and unsold homes in the market and on Bank's balance sheets. Second, food is cheap in America. This was a surprise to me when I moved to the US from India in the early 1990’s: a country where the poor are fat and the rich are thin! This is exactly the opposite of the situation you see in most less developed nations including India.
So my idea/concept is very simple:
Most people’s #1 and #2 fear related to this crisis are: will I and my family lose the roof over our heads at some point due to this crisis, and will I and/or my family need to go hungry if things get really bad. People are scared because they don’t know how bad things can get for them, and they are worried about a worst case scenario playing out. There are even well known leaders/voices discussing this worst case scenario, and advising people to stock up on guns and food in preparation of a 2nd depression with civil unrest.
Well…it seems to me the housing problem is the simplest to solve as a country. Given the oversupply of homes nationwide, there is no reason a single American family should go homeless as a result of this crisis. Yet, every day families are facing this very issue. I know this because I have heard some of these very people speak at some of our public forums in LA (including one last week). The food situation is similar….food is cheap in America…super cheap relative to most other countries (on a purchasing power parity basis). Therefore, there’s no reason a single American should go hungry as a result of this crisis.
I think if the US President and/or Government were to tell all Americans simply this: We will make sure not a single American family goes homeless or hungry as a result of this economic crisis….that this would have a tremendous calming effect on the American people….and will accelerate our economic recovery. I think this “guarantee” should be relatively cheap to provide….especially in relation to the monies already being invested and spent to stabilize the financial system and stimulate the economy.
As with so many other things in life, there is both a real and an emotional/mental aspect to this crisis. If we can address people's biggest fears as described above, I think it would go a long way toward addressing the mental issues....which are often even more important/impactful than the real ones.
February 26, 2009 Update
Unfortunately, the reality on the ground - especially in California - continues to get worse. Witness this article today in Bloomberg on how previously middle class families are standing in line for government subsidized housing and food/social services due to the impact of the crisis on their lives. See article below:
California’s Newly Poor Push Social Services to Brink
Feb. 26 (Bloomberg) -- In California’s Contra Costa County, 40,000 families are applying for just 350 affordable-housing vouchers. Church-operated pantries are running out of food. Crisis calls have more than doubled in the city of Antioch, where the Family Stress Center occupies the site of a former bank.
The worst financial crisis in seven decades is forcing thousands of previously middle-income workers to seek social services, overwhelming local agencies, clinics and nonprofits. Each month 16,000 people, including many who were making $60,000 to $100,000 annually just a few years ago, fill four county offices requesting financial, medical or food assistance.
For the full article click here: Bloomberg article
Foreclosure 101 from LA Times: Link and Thoughts
Given the widespread nature of our current economic troubles and the number of people having issues making their mortgage payment, there are a lot of players in the market who are trying to help consumers. Some of these players are legitimate and well-intentioned...and unfortunately, some are not. When in doubt, I always prefer to direct people to government, government supported, or non-profit resources (i.e., free resources).
Here is an LA Times article that provides good information on the foreclosure issue, including contact information for government/non-profit resources available to homeowners in trouble in the Los Angeles area.
One key and obvious issue the article mentions and which I'd like to re-iterate is this: we can debate many aspects of how to best act when you are unable to make your mortgage payments in full and on time, but one thing we should not debate is this: avoiding the problem and not doing anything is the wrong answer. Unfortunately, too many homeowners do just this - avoid addressing the issue until it's too late. If you don't feel comfortable calling your Bank/servicer, contact one of these independent resources and try to be proactive in addressing the issue.
Here is an LA Times article that provides good information on the foreclosure issue, including contact information for government/non-profit resources available to homeowners in trouble in the Los Angeles area.
One key and obvious issue the article mentions and which I'd like to re-iterate is this: we can debate many aspects of how to best act when you are unable to make your mortgage payments in full and on time, but one thing we should not debate is this: avoiding the problem and not doing anything is the wrong answer. Unfortunately, too many homeowners do just this - avoid addressing the issue until it's too late. If you don't feel comfortable calling your Bank/servicer, contact one of these independent resources and try to be proactive in addressing the issue.
Thursday, February 12, 2009
Mission and Vision for HausAngeles
A recent blog introduced you to “HausAngeles” and described what we do, the geographies we serve, what’s unique about our approach and who’s on the team. If you missed that blog and related newsletter, please click here to check it out: Introducing HausAngeles. Now, I'd share with you our mission and vision for HausAngeles. You can listen to me describing this live or read the text below:
Foundation: HausAngeles – and it’s vision and mission – are grounded in who we (the co-founders of HausAngeles) are as people and what we’re trying to accomplish in life. Here are the key drivers:
1. Our Passions and Interests: AV and I have the following key passions and interests (which are reflected in both our educational and professional experiences to date): Public Policy/Economics, Problem Solving, Business/Marketing, Architecture/Design and Technology. We plan to create a business that “connects these dots” in a way that could sustain our family consistent with our values.
2. Our Values and Principles: We are building a business that reflects who we are as people in 2 key ways: (a) It’s not just about making money, but in a significant way about giving back and helping others; (b) We always do what we believe is right, no matter what
3. Our Family and Life Goals: We are highly family oriented and love Los Angeles (where we live). We want to create a business that is local and doesn’t require regular travel.
Mission: With a foundation in the above principles/goals, our mission at HausAngeles is to:
1. Solve real problems on the ground: As we all know, there are plenty of problems in the real estate market right now particularly in the area of foreclosures and foreclosure prevention
2. Improve the practice of real estate: In particular, we see a need and opportunity to:
a. Better educate and inform consumers on the market situation and also the real estate/mortgage process. This includes everyone given how complex the mortgage and real estate process is, but particularly those that are less educated and looking for homes in the lower priced ranges.
b. Improve the level of professionalism and ethics practiced in real estate
3. Help people and create opportunities: We are passionate about helping those less fortunate than us. As founders of a private company, we can make our company anything we want and so we decided to become social entrepreneurs by:
a. Donating 10% of our earnings – before either AV or I get paid – to help people in need or to create opportunities for those that lack them such as the kids that live in public housing developments
b. Donating more when we make more: For transactions over $1million, we will increase the above number to 15% and for transactions over $2million, we will increase it to 20%
Vision: Based on the above as well as the reality on the ground in Los Angeles real estate, here is vision and focus at HausAngeles:
1. Foreclosure Prevention and Loss Mitigation: Design and implement innovative programs to help consumers, prevent foreclosures, reduce lender losses, and help the housing market find its bottom. We have developed a short (3 pages total) vision on this topic, which is published on this blog. We will be working with key lenders/servicers to design, pilot, refine and widely share (with an open source philosophy) programs consistent with this vision. Stay tuned for an announcement on a key foreclosure prevention program pilot we are slated to launch in the next 30 or so days – in the area of lender assisted short sales.
2. Affordable housing/First Time Home Buyers: In real estate, those generally less educated, less informed consumers who are looking for lower priced “affordable” homes (say in the $200,000 to 400,000 range) and need education/information on the mortgage and real estate process the most….unfortunately receive the worst quality real estate support and education. We think this makes no sense, and will be focusing on supporting this key market with high quality, education driven first time home buyer/affordable housing programs.
3. Investments: We believe it is likely the current down housing market will represent some of the best real estate investment opportunities in our lifetimes. Certainly, we plan to personally “double down” in real estate during this cycle. We will be working with investors, as individuals and in groups, to help them identify and execute on real estate investment opportunities.
Foundation: HausAngeles – and it’s vision and mission – are grounded in who we (the co-founders of HausAngeles) are as people and what we’re trying to accomplish in life. Here are the key drivers:
1. Our Passions and Interests: AV and I have the following key passions and interests (which are reflected in both our educational and professional experiences to date): Public Policy/Economics, Problem Solving, Business/Marketing, Architecture/Design and Technology. We plan to create a business that “connects these dots” in a way that could sustain our family consistent with our values.
2. Our Values and Principles: We are building a business that reflects who we are as people in 2 key ways: (a) It’s not just about making money, but in a significant way about giving back and helping others; (b) We always do what we believe is right, no matter what
3. Our Family and Life Goals: We are highly family oriented and love Los Angeles (where we live). We want to create a business that is local and doesn’t require regular travel.
Mission: With a foundation in the above principles/goals, our mission at HausAngeles is to:
1. Solve real problems on the ground: As we all know, there are plenty of problems in the real estate market right now particularly in the area of foreclosures and foreclosure prevention
2. Improve the practice of real estate: In particular, we see a need and opportunity to:
a. Better educate and inform consumers on the market situation and also the real estate/mortgage process. This includes everyone given how complex the mortgage and real estate process is, but particularly those that are less educated and looking for homes in the lower priced ranges.
b. Improve the level of professionalism and ethics practiced in real estate
3. Help people and create opportunities: We are passionate about helping those less fortunate than us. As founders of a private company, we can make our company anything we want and so we decided to become social entrepreneurs by:
a. Donating 10% of our earnings – before either AV or I get paid – to help people in need or to create opportunities for those that lack them such as the kids that live in public housing developments
b. Donating more when we make more: For transactions over $1million, we will increase the above number to 15% and for transactions over $2million, we will increase it to 20%
Vision: Based on the above as well as the reality on the ground in Los Angeles real estate, here is vision and focus at HausAngeles:
1. Foreclosure Prevention and Loss Mitigation: Design and implement innovative programs to help consumers, prevent foreclosures, reduce lender losses, and help the housing market find its bottom. We have developed a short (3 pages total) vision on this topic, which is published on this blog. We will be working with key lenders/servicers to design, pilot, refine and widely share (with an open source philosophy) programs consistent with this vision. Stay tuned for an announcement on a key foreclosure prevention program pilot we are slated to launch in the next 30 or so days – in the area of lender assisted short sales.
2. Affordable housing/First Time Home Buyers: In real estate, those generally less educated, less informed consumers who are looking for lower priced “affordable” homes (say in the $200,000 to 400,000 range) and need education/information on the mortgage and real estate process the most….unfortunately receive the worst quality real estate support and education. We think this makes no sense, and will be focusing on supporting this key market with high quality, education driven first time home buyer/affordable housing programs.
3. Investments: We believe it is likely the current down housing market will represent some of the best real estate investment opportunities in our lifetimes. Certainly, we plan to personally “double down” in real estate during this cycle. We will be working with investors, as individuals and in groups, to help them identify and execute on real estate investment opportunities.
Thursday, February 5, 2009
Foreclosure Prevention & Housing Market Stabilization: Thoughts from the Ground Level
Please find below a brief proposal I have put together on the issue of foreclosure prevention and housing market stabilization based on what I and the team at HausAngeles as well as our colleagues, clients and strategic partners are actually seeing (and not seeing) on the ground in Los Angeles/Southern California. I and we do not claim to have all the answers on this "massive issue". Nor do we claim all of the ideas below are mine or ours (please see footnote 1: acknowledgements). However, refining and executing on some or all of these ideas will be a key focus for me and the team at HausAngeles for the foreseeable future and until the housing market stabilizes. Our primary geographic focus is Los Angeles, but we plan to share learnings and information widely and freely to maximize impact at the ground level.
Preventing Foreclosures, Helping Consumers and Accelerating the Stabilization of the US Housing Market
Background and Context
I am the former Chief People/Administrative Officer and CEO Chief of Staff of Indymac Bank, who found herself at the epicenter of the mortgage and housing crisis since mid-2007. I resigned from Indymac after the FDIC placed the company into conservatorship, but decided to continue to focus on the housing/real estate sector where I saw and continue to see tremendous opportunity for positive impact, both personal and professional.
As I have gotten deeper into the real estate market and understood the reality on the ground on foreclosures[1], I have discovered numerous untapped and under-tapped opportunities to better help consumers manage their financial issues/life transitions, prevent foreclosures, reduce lender/investor losses, and help the housing market “find its bottom”. I strongly believe the housing market reaching bottom (or close to it) will mark a crucial turning point in our economic recovery.
Two interesting and important characteristics that I believe many of these opportunities share are:
1. Many (if not most) of the proposed initiatives actually help consumers, lenders/investors and the US economy. This alignment of interests is historic as these stakeholders often have competing objectives, especially in times of crisis;
2. Many of these opportunities require government coordination and support to work effectively and expediently, as key implementation challenges are common across industry players and/or require government support/regulatory changes.
Untapped and Under-tapped Opportunities to Help Consumers, Reduce Loan Losses and Accelerate the Bottoming of the Housing Market:
1. Ensure every homeowner in trouble who can realistically afford to continue to own their home with a modified loan, gets one as soon as possible
* One of the big reasons a large percentage of borrowers in trouble currently don’t get timely help via a loan modification is literally because they don’t respond to letters from their Bank. It’s not difficult to understand this behavior: consumers delinquent on payments are scared to open/respond to letters from the very organization that they owe money to (which they are not sure they can pay back as promised).
* On the other hand, there are thousands (likely millions) of licensed professionals (e.g., realtors, financial advisors/planners) already living in the same communities as the borrowers in trouble…who are not being leveraged to solve this communication problem.
* So let’s leverage these licensed professionals on the ground to ensure we have evaluated every borrower who is behind on their mortgage to see if there’s a way to realistically help them retain ownership of their home[2].
2. Turn more owners into renters:
* In times of crisis, it’s critical to prioritize what’s most important. My belief is that safety and family are more important for homeowners in trouble than ownership, given the seriousness of the crisis we are facing.
* As a result, I believe we should implement programs that turn some current homeowners into renters without making them move e.g., by transferring ownership of the homes they are living in and love to investors who are looking for income earning assets.
3. Implement systematic, lender supported short sales:
* Where it is not possible for the current homeowner to continue to own their home, we should avoid the foreclosure process (which is painful, time consuming and expensive) and instead facilitate the sale of the home with the borrower and lender working as partners instead of adversaries.
* As someone in the real estate business I can tell you that getting a short sale executed right now is nightmarish. There are no industry standards and most lenders are not set up internally to properly approve/manage short sales. Yet short sales nip the foreclosure process in the bud and are better for homeowners (who would have the opportunity to adjust their housing reality to their economic reality and prospects with greater dignity and respect), lenders and the US economy[3].
* Since systematic, lender assisted short sales are a lower cost option to foreclosure, it may be possible to divert some of the cost savings back to consumers to help them with their life transition (e.g., for relocation and/or other expenses related to their move/life change)
4. Implement rent to own programs to expand demand
* For families who do not have enough saved to make a down payment or qualify for a conventional mortgage but who have jobs/steady monthly income there is an opportunity to create future home ownership opportunities through creative rent to own program designs
5. Expand the nation’s affordable housing stock:
* In many cities across the country there is currently an acute shortage of affordable housing and the existing affordable housing stock is in poor condition. In Los Angeles (where I am personally involved), as an example, we are embarking on a 25 year plan to redevelop our ~10,000 public housing units. Such redevelopment and development programs will take decades and cost billions.
* Why embark on that costly and time consuming process, when we have an excess supply of housing nationwide already? Instead, let’s turn some of these currently empty/lender owned properties into affordable housing and bring hope to those that sit at the bottom rung of the economic ladder in our society.
* I believe Fannie Mae and Freddie Mac REO’s (which are currently being held on these entities’ balance sheets due to recent foreclosure moratoriums), or a significant portion of them, are likely best suited for this purpose. Some of this newly created affordable housing could be transferred to public housing authorities across the nation for management/administration, while some could be sold to investors as income-earning Section 8 or other affordable housing.[4]
Thoughts on Implementation
Given the seriousness of the current housing and economic crisis and my view that housing reaching a bottom will mark a crucial turning point in our economic recovery, I believe a cross-functional, multi-agency, multi-lender task force/team should be put together with a goal of clearing the market of the current total inventory of bank/lender/investor owned single family properties over the next 12 months.
In other words, let’s do whatever we can (after agreeing on some basic principles and philosophies) to try to have the housing market bottom by the end of 2009/early 2010. Once the current inventory has been cleared, we can focus on efficiently clearing the market only of new inventory (which should hopefully be at lower levels with the help of the President’s job creation plan and the effect of some of the above described programs).
Concluding Thoughts
I believe there are 2 key flaws in our current approaches on foreclosure prevention and clearing the market of troubled real estate inventory. First, foreclosure moratoriums, although well intentioned, only “push the ball down the road” to be dealt with at a later time i.e., these moratoriums are reducing supply today and are likely to prolong the duration of home price declines. Second, I believe there is an excessive focus on home ownership as a primary goal, whereas I believe we are ‘beyond ownership’ as a country. Dealing with the housing crisis should be about safety and family, and about reflecting American families’ actual economic reality in their housing reality (as gracefully and kindly as possible). These core principles are a foundation of this proposal.
[1] My views/ideas on foreclosures, REO’s and the real estate market reflect key input and insights from: Tony Ebers, Chief Operating Officer (Indymac), Eric Friedman, SVP Default Management (Indymac), John Olinski, EVP (Indymac), Ron Bergum (CEO, Prospect Mortgage), and Ron Garber, CEO, shortsaleplan.com
[2] Note: The Hope Now alliance does not include individuals including licensed professionals
[3]For example: Short sales result in an ~2year credit impact for homeowners in CA vs. ~5 years for a foreclosure. Also, short sales are significantly less expensive than foreclosures (e.g., legal fees, home damage) and don’t have the reputational stain of foreclosures. Finally, short sales in a declining home price environment result in significantly less loan losses by accelerating the timing of asset sale
[4] I should note that I believe any new affordable housing created should come “with strings” i.e., individuals and families should be committed to learning and earning their way out of government subsidized housing within a defined period of 3-5 years to be eligible to move into the new housing.
Preventing Foreclosures, Helping Consumers and Accelerating the Stabilization of the US Housing Market
Background and Context
I am the former Chief People/Administrative Officer and CEO Chief of Staff of Indymac Bank, who found herself at the epicenter of the mortgage and housing crisis since mid-2007. I resigned from Indymac after the FDIC placed the company into conservatorship, but decided to continue to focus on the housing/real estate sector where I saw and continue to see tremendous opportunity for positive impact, both personal and professional.
As I have gotten deeper into the real estate market and understood the reality on the ground on foreclosures[1], I have discovered numerous untapped and under-tapped opportunities to better help consumers manage their financial issues/life transitions, prevent foreclosures, reduce lender/investor losses, and help the housing market “find its bottom”. I strongly believe the housing market reaching bottom (or close to it) will mark a crucial turning point in our economic recovery.
Two interesting and important characteristics that I believe many of these opportunities share are:
1. Many (if not most) of the proposed initiatives actually help consumers, lenders/investors and the US economy. This alignment of interests is historic as these stakeholders often have competing objectives, especially in times of crisis;
2. Many of these opportunities require government coordination and support to work effectively and expediently, as key implementation challenges are common across industry players and/or require government support/regulatory changes.
Untapped and Under-tapped Opportunities to Help Consumers, Reduce Loan Losses and Accelerate the Bottoming of the Housing Market:
1. Ensure every homeowner in trouble who can realistically afford to continue to own their home with a modified loan, gets one as soon as possible
* One of the big reasons a large percentage of borrowers in trouble currently don’t get timely help via a loan modification is literally because they don’t respond to letters from their Bank. It’s not difficult to understand this behavior: consumers delinquent on payments are scared to open/respond to letters from the very organization that they owe money to (which they are not sure they can pay back as promised).
* On the other hand, there are thousands (likely millions) of licensed professionals (e.g., realtors, financial advisors/planners) already living in the same communities as the borrowers in trouble…who are not being leveraged to solve this communication problem.
* So let’s leverage these licensed professionals on the ground to ensure we have evaluated every borrower who is behind on their mortgage to see if there’s a way to realistically help them retain ownership of their home[2].
2. Turn more owners into renters:
* In times of crisis, it’s critical to prioritize what’s most important. My belief is that safety and family are more important for homeowners in trouble than ownership, given the seriousness of the crisis we are facing.
* As a result, I believe we should implement programs that turn some current homeowners into renters without making them move e.g., by transferring ownership of the homes they are living in and love to investors who are looking for income earning assets.
3. Implement systematic, lender supported short sales:
* Where it is not possible for the current homeowner to continue to own their home, we should avoid the foreclosure process (which is painful, time consuming and expensive) and instead facilitate the sale of the home with the borrower and lender working as partners instead of adversaries.
* As someone in the real estate business I can tell you that getting a short sale executed right now is nightmarish. There are no industry standards and most lenders are not set up internally to properly approve/manage short sales. Yet short sales nip the foreclosure process in the bud and are better for homeowners (who would have the opportunity to adjust their housing reality to their economic reality and prospects with greater dignity and respect), lenders and the US economy[3].
* Since systematic, lender assisted short sales are a lower cost option to foreclosure, it may be possible to divert some of the cost savings back to consumers to help them with their life transition (e.g., for relocation and/or other expenses related to their move/life change)
4. Implement rent to own programs to expand demand
* For families who do not have enough saved to make a down payment or qualify for a conventional mortgage but who have jobs/steady monthly income there is an opportunity to create future home ownership opportunities through creative rent to own program designs
5. Expand the nation’s affordable housing stock:
* In many cities across the country there is currently an acute shortage of affordable housing and the existing affordable housing stock is in poor condition. In Los Angeles (where I am personally involved), as an example, we are embarking on a 25 year plan to redevelop our ~10,000 public housing units. Such redevelopment and development programs will take decades and cost billions.
* Why embark on that costly and time consuming process, when we have an excess supply of housing nationwide already? Instead, let’s turn some of these currently empty/lender owned properties into affordable housing and bring hope to those that sit at the bottom rung of the economic ladder in our society.
* I believe Fannie Mae and Freddie Mac REO’s (which are currently being held on these entities’ balance sheets due to recent foreclosure moratoriums), or a significant portion of them, are likely best suited for this purpose. Some of this newly created affordable housing could be transferred to public housing authorities across the nation for management/administration, while some could be sold to investors as income-earning Section 8 or other affordable housing.[4]
Thoughts on Implementation
Given the seriousness of the current housing and economic crisis and my view that housing reaching a bottom will mark a crucial turning point in our economic recovery, I believe a cross-functional, multi-agency, multi-lender task force/team should be put together with a goal of clearing the market of the current total inventory of bank/lender/investor owned single family properties over the next 12 months.
In other words, let’s do whatever we can (after agreeing on some basic principles and philosophies) to try to have the housing market bottom by the end of 2009/early 2010. Once the current inventory has been cleared, we can focus on efficiently clearing the market only of new inventory (which should hopefully be at lower levels with the help of the President’s job creation plan and the effect of some of the above described programs).
Concluding Thoughts
I believe there are 2 key flaws in our current approaches on foreclosure prevention and clearing the market of troubled real estate inventory. First, foreclosure moratoriums, although well intentioned, only “push the ball down the road” to be dealt with at a later time i.e., these moratoriums are reducing supply today and are likely to prolong the duration of home price declines. Second, I believe there is an excessive focus on home ownership as a primary goal, whereas I believe we are ‘beyond ownership’ as a country. Dealing with the housing crisis should be about safety and family, and about reflecting American families’ actual economic reality in their housing reality (as gracefully and kindly as possible). These core principles are a foundation of this proposal.
[1] My views/ideas on foreclosures, REO’s and the real estate market reflect key input and insights from: Tony Ebers, Chief Operating Officer (Indymac), Eric Friedman, SVP Default Management (Indymac), John Olinski, EVP (Indymac), Ron Bergum (CEO, Prospect Mortgage), and Ron Garber, CEO, shortsaleplan.com
[2] Note: The Hope Now alliance does not include individuals including licensed professionals
[3]For example: Short sales result in an ~2year credit impact for homeowners in CA vs. ~5 years for a foreclosure. Also, short sales are significantly less expensive than foreclosures (e.g., legal fees, home damage) and don’t have the reputational stain of foreclosures. Finally, short sales in a declining home price environment result in significantly less loan losses by accelerating the timing of asset sale
[4] I should note that I believe any new affordable housing created should come “with strings” i.e., individuals and families should be committed to learning and earning their way out of government subsidized housing within a defined period of 3-5 years to be eligible to move into the new housing.